For a generation, Battersea power station has been standing empty, noble but slowly rotting, while all around it the unending boom in London domestic property has made its surroundings shinier and pricier. This is the land of "Soanlies" (as in " 's only 10 minutes from Sloane Square"), an almost-Chelsea with almost-Chelsea values. In the early 1980s, a lot of London looked as scabrous as the power station; now it is the capital's last great ruin. It is like a malodorous grandparent who refuses to do the decent thing and die, so that his heirs can put a Bulthaup kitchen in the family home.

Over the past few months calls for its euthanasia have gathered pace, prompted by the fact that bids are currently being considered for the site – of which the most eye-catching is Chelsea FC's proposal to retain fragments of the building and engulf them in a new stadium. The built asset consultancy EC Harris announced that the site would be worth an extra £470m if it were knocked down, and declared that "the economic situation requires practical thinking, and one should consider whether heritage is more important than profit".

The property journalist Giles Barrie said that "the only people who want Battersea power station retained are a few ancient hippies … in the worst financial crisis since the era of Harold Wilson and Ted Heath, it's time to drop Battersea power station – and provide thousands of new homes".

You might see Barrie's point. Battersea has now spent longer as an urban problem than it did producing electricity at full capacity. Except that the same argument was applied to St Pancras station, with its palatial neo-gothic Midland Grand hotel, which was designed by Sir George Gilbert Scott, grandfather of the power station's architect, Sir Giles. Indeed this argument was used repeatedly. In the Wilson/Heath era to which Barrie refers, the hotel was declared an impossible luxury, a drain on hard-pressed national resources, an unsolvable problem. It did indeed stand empty for decades. But last year it was triumphantly reopened, and no sane person would want it removed.

Or else there are the Wren churches in the City of London. Look at how much land they take up! See how appalling is their return of floor space to site area! And their maintenance costs! Think how much world-class office space could be built in their place, giving the message to foreign investors that London is open for business! And who goes to church anyway?

The fact is that, in places such as London, heritage is sometimes put before profit, and the city ends up benefiting: culturally, socially, visually and financially. If you took away all the awkward, hard-to-justify, out-of-fashion, eccentric and expensive landmarks, it would become a drabber, duller place. It would be more like, say, Frankfurt or Zurich, cities which are forever trying to grab more of London's financial business, and with only limited success, precisely because they are more boring.

As for the argument that preservation can't be afforded in a recession, this is beyond absurd. A recession, in Battersea? It's hard to spot. But the main reason for resisting the property industry's calls for demolishing the power station, in whole or part, is that the site's dormancy is, above all, a failure of the property industry.

Successive owners have proposed fantastical projects – a theme park, a retail-entertainment complex in which Cirque du Soleil would swoop down on unsuspecting shoppers, a thousand-foot "ecodome" – which required unfeasibly large amounts of upfront investment, and failed adequately to address such things as the location's poor public transport. What's more, these plans, while retaining the old building, would have so thoroughly changed its character that it was hardly worth the effort.

Chelsea FC's plans have not yet been revealed, but it is hard to imagine that they will not have similar problems – gigantism, the destruction of the essential qualities of the old building, and rather obvious issues with transport and local residents. It is hard to see how dropping a stadium on the power station would be anything other than an awkward coupling: a camel with a hippo, say.

Meanwhile it has been plain for years what the site is best for: a great deal of housing, taking advantage of the area's high values and waterside location, to be developed incrementally as the market allows. As a look at Google Earth will tell you, there is plenty of room, as the power station only occupies one-seventh of the site. The architects Allies and Morrison and Terry Farrell have come up with different ideas for what it could be used for – a relatively simple performance venue in one case, a romantic ruin containing a garden in the other. Neither would be profitable in itself, but could be paid for by the returns on the rest of the site.

The last owners were Treasury Holdings, a Dublin-based company, which once bid unsuccessfully for the Millennium Dome and whose finances eventually went the way of the Irish economy. It bought the site for £400m in 2006, a fatally high price that is rumoured to have been £150m above that of the next highest bidder.

The aim of the current sale is to recover some of the money that financial institutions were dumb enough to lend to the Treasury. If the power station were to go, the value would increase, so the creditors would get more of their money back. The argument for demolition, or for crushing it under a stadium, is to destroy a listed building so that lenders get a less severe haircut.

But this is their problem: buyers of the site, in the past and the future, know that it contains a large historic building, and they should calculate the price accordingly. If they get it wrong, the city's heritage should not pay for their mistake.